If we could crack this nut, then i think ardor would stand a good chance of being one of the major decentralized exchanges of choice :

A secure way to do a ardor chain or asset that tracks an external chain or token, similar to tether and aeur, but entirely decentralized with no trusted parties.

in a centralized system a user would send bitcoins to the trusted entity and only the trusted entity could send them back, trusted entity then release the assets in the same amounts as bitcoins were locked. To get the locked btc back, someone would have to send assets to the trusted entity who would then remove the assets from circulation and send the bitcoins on the btc chain.

how on earth can we do a similar thing with no trusted party, only decentralized transactions?

i think we should try to think up and discuss various models and solutions and perhaps brainstorm something that might work.

solution A

proven reserves :

imagine a transaction along these lines :decentralized banker : i have N BTC locked into this bitcoin address and i can prove it because i can sign a transaction on the btc network from same private key (or something along those lines)decentralized banker : hi ardor network, i would like to be a reserve banker with my BTC. commence staking pls!ardor decentralized network : hi decentralized banker. We have added N/2 ABTC to our supply. We will monitor your BTC address and if funds go out from that address, we'll remove N/2 of them from supply.decentralized banker : woweee! now my BTC are backing ABTC 200%. I now earn ABTC from ABTC fees, it's like i'm forging bitcoin

something derived from above might possibly work if we get parameters right. a way to get ABTC out of circulation must exist, perhaps the decentralized system will have to buy them on the asset exchange, setting a price that is (for instance) a percent lower than CMC average. To get ABTC into circulation the decentralized system could put ABTC up for sale at 1% over CMC average. The CMC average could be establised by prior blocks.

incentives : banker gets the opportunity for making ABTC staking profits from his BTC!ardor network will make more fees overall so ardor ecosystem would like the setupthe decentralized abtc system would have its own abtc acct and ardor acct , holding trading profits, unbacked ABTC (cannot be sold), backed ABTC (for sale)

solution B

cross chain stuff :

another soltion could be decentralized cross chain transactions. This is probably easier for the users to understand, but might be hard to implement.if btc can be somehow programmed it might be possible for someone to lock in btc in the btc blockchain so that only the decentralized ardor network can unlock again. This would be a very elegant solution, however, i am not sure how to go about it tecnically. perhaps the decentralized ardor network could somehow have parts of the btc key but no ardor node itself (and certanly not the banker) could know what the key is.

investigate existing cross chain solutions for inspirationit would probably be more trivial to create a cross chain solution for etherum as eth is programmablemain problems would likely be to ensure that both chains agree on state and that forks cannot be used to lure the other chain into freeing coins. (you could get the transaction and replay on the main fork)

solution C

decentralized exchange accounts:

ardor users simply "create" a btc account on the decentralized ardor network and somehow "funds" the account.no single node can spend the btc accounts, but the decentralized network in unison can - so when users make a withdrawal, the ardor decentralied network send some BTC to the user from earlier deposits.

this would work exactly as a centralized solution and the user experience would be very similar to centralized exchanges

however, how do we manage to make sure no node can know how to spend btc from the ardor chain acct, yet still, when a user withdraw, the ardor decentralized network will have to figure the btc key and do a btc transaction - how do we make sure the node forging the ardor block does not spend the btc to someone else than the person making the withdrawal? remember withdraws might have to be from funds not deposited by that user.

i'm wondering if perhaps some of the technology used by lightning network might solve some of the outstanding problems.

this might possibly work :

In any case, perhaps the first thing to architect would be a two-way cross chain system that enabled people to send eth to a smart contract on etherum network and that would end up as AETH on an ardor AETH child chain.

And of course the other way around too. we'd need a smart contract on ETH with a lot of user ETH in it, and a smart contract on ardor that had a lot of AETH in it, all fully backed by the ether contract (only way the AETH gets into existance is depoists to the ether contract, and only way AETH go away is AETH deposits to he ardor contract)

so user deposits ETH to the ETH smart contract, and after some confirms his ardor AETH acct is credited with those funds, ex fees.and user can depoist AETH to the ardor smart contract and after some confirms his ETH address gets credited with ETH

basically people forging the eth to ardor bridge would have to have both eth and ardor nodes running.once that worked fine we could do more ardor child chains that was linked to other smart contract currencies. That would enable holders of e.g. ETH to trade on the ardor decentralized exchange